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Company directors must take action now to boost cashflow says Begbies Traynor

The warmer weather, longer days and steady reopening of the economy brings brighter news for company directors but many still face challenges, say experts at Begbies Traynor.

The warmer weather, longer days and steady reopening of the economy brings brighter news for company directors but many still face challenges, say experts at Begbies Traynor.

Begbies Traynor says there are more than 9,000 business in ‘significant distress’ in the Liverpool City Region.

A number of companies have been artificially supported by the Government’s aid measures and whilst these won’t be removed overnight many will struggle to operate without this support and with the burden of immediate cash flow requirements. 

Keith Tully, partner at Begbies Traynor in Liverpool, highlights the six positive key steps company directors can take now:

  1. Accurate information – “It’s not uncommon for many business owners to only produce cash flow forecasts or targets when their annual accounts are due. The key to assessing the extent of the difficulties is current and accurate information. Directors should be preparing weekly or monthly cash flow forecasts detailing the immediate requirements.”
  2. Respond Accordingly – “Once the position and requirements are known directors will need to address any gaps in funding or immediate cash flow requirements. Can cost savings be implemented, is there opportunity to secure additional turnover, will creditors be willing to take payment over longer periods?”
  3. Business Interruption Insurance – “The Supreme Court has ruled upon the interaction of coronavirus and business interruption insurance and estimates suggest as much as £1.8 million worth of claims will be paid out across a variety of policies. Directors should check their policies and see if a claim can be made for loss of earning.”
  4. Bounce Back Loans – “Borrowers now have the ability to extend repayments up to 10 years, make interest free repayments, and take payment holidays of up to six months, all options that may provide some much need breathing space and affordability.”
  5. VAT deferment – “Similarly HMRC have launched a VAT deferral scheme for VAT that was deferred from between 20 March and 30 June 2020. The scheme can be joined between 23 February 2021 and 21 June 2021 and the earlier a borrower opts in the greater number of monthly instalments they can make.”
  6. Alternative funding – “Many businesses may need to plug holes in cashflow by raising additional finance. In addition to traditional high street loans business owners may want to consider alternative sources such as invoice finance or factoring; asset finance (including lenders provide assistance with stock purchases) and peer to peer lending.”

Begbies Traynor says that directors of struggling companies should also consider their position and potential exposure if their company is placed into a formal insolvency process. This could lead to calls on personal guarantees that may be particularly relevant now the reinstatement of secondary preferential status has ensured HMRC will be paid ahead of secured creditors in a number of instances. 

Keith Tully explains:

“Directors will also need to consider whether their conduct and use of funds will give rise to any personal liability and whether or not an overdrawn director’s loan account has accrued. This latter situation will be particularly common in cases where the director/shareholders are traditionally remunerated via dividends and the company has lacked the reserves for these to be lawfully paid.

“Company directors who are running a distressed business should explore all their restructuring options now if they are to survive and seek early advice where possible. Getting together a proactive creditor strategy, fresh re-financing package or a tax efficient disposal of the business needs to be high on the agenda for directors at this moment in time.” Begbies Traynor has launched a new confidential hotline (0800 056 1059) enabling company directors to resolve the growing challenges they face in repaying bounce-back loans, deferred tax bills and impatient creditors.

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